A lot happened in the financial world in 2007—and much was said as well. Herewith, we look back at some of the pearls of wisdom—some accurate, some wishful thinking, some dumb—uttered by the bigwigs of Wall Street in the past year.
From the predictions department: “I think the public markets are overrated,” said Blackstone Group Lp. chief Steve Schwarzman in February.
Less than six months later, the private equity firm he founded went public. Since then it appears that the same could be said of Blackstone’s shares, which have fallen 25% from their initial public offering price.
In early July, Chuck Prince, then chief executive of financial behemoth Citigroup Inc., rightly noted that “when the music stops, in terms of liquidity, things will get complicated.” At the time, he remained optimistic: “as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Since then, Citigroup stock is down more than 40% and Prince is unemployed.
Rather more accurate in the ‘looking ahead’ category stands William Conway, one of the founders of private equity firm Carlyle Group. In his annual letter to the firm’s staff earlier this year, he acknowledged that “this liquidity environment cannot go on forever […] the longer it lasts the worse it will be when it ends.”
Speaking of the credit crunch and housing turmoil, there were also a few instances of disbelief and denial.
Take Goldman Sachs Group Inc. chief financial officer David Viniar, who when speaking after a $3 billion (Rs11,820 crore) cash infusion into one of the firm’s troubled equity hedge funds, declared: “This is not a rescue.” Viniar continued: “Given the dislocation in the market, we believe this is a good investment opportunity for us and other investors.”
On 24 July, mortgage lender Countrywide Financial reported a 33% drop in second quarter earnings. “Nobody saw this coming,” said chief executive Angelo Mozilo, blaming the Fed for the crisis and offering insight to investors on the linkage between the housing market and the overall economy: “I do think that this ultimately has to have an effect on the economy. I just can’t believe the economy is totally insulated from housing.” Neither are the company’s shares, down 70% since then.
The Fed wasn’t always to blame. Homebuilder Hovnanian chalked up its troubles to the media when its Ohio marketing director Greg Pillen announced a weekend sale for potential buyers in September. “People want to buy homes, but the media has made them nervous”, he said. “They just need to realize that there’s no better time to buy a home.”
The winner for “wishful valuation” would likely go to H&R Block chief Mark Ernst.
On a January investor call, he put a high price tag on the company’s mortgage operations. “We clearly are not looking to sell the business for $700 million[…] we would fully expect that the value is going to exceed the carrying value that we have for the business at $1.3 billion.”
Pity then that things didn’t quite turn out that way: a sale to private equity shop Cerberus fell through and in December the company said that it would take a $75 million charge related to the restructuring of that same business.
Banking executives had the most explaining to do, however. “No one—no one—is more disappointed than I am in that result,” said Merrill Lynch and Co.’s Stan O’Neal on the firm’s third quarter earnings, which included nearly $8 billion in write-downs. He ‘retired’ six days later with $161 million in severance payments and other perquisites.
Just days earlier, Ken Lewis, O’Neal’s counterpart at Bank of America (BoA), expressed his own dismay. “I’ve had all the fun I can stand in investment banking at the moment.” It’s not clear that banking is supposed to be fun. It is, however, meant to make money—something not happening at BoA. Third quarter profit plummeted 93% for that division.
And finally there was Albert Lord, chief of Sallie Mae Inc., who may well have summed up the feelings of many financiers wanting to move on from a dismal 2007. “Let’s go. There’s no questions. Let’s get the fuck out of here.”